As part of the package of measures included in the draft Finance Bill 2020-21, the Treasury has set out a roadmap for extending Making Tax Digital filing. From April 2022, the programme will be extended to all VAT registered businesses and plans to include income tax self-assessments from April 2023.
The current Making Tax Digital rules
Since the 1st April 2019, VAT-registered businesses with a VAT taxable turnover of over £85,000 are required to store their VAT records digitally. To comply with digital tax record keeping, this is done via an MTD-compatible software. All eligible businesses have also been filing their VAT returns online since the MTD for VAT legislation was introduced.
Changes outlined in the draft legislation for the Finance Bill 2020-21
On 21st July, the Treasury set out the government’s ten-year plan to modernise the tax administration system and outlined the next steps in the MTD strategy – bringing the UK’s tax system into the 21st Century.
The changes outlined in the draft legislation will not affect the amount of tax individuals and companies have to pay. Instead, it aims to reduce the “avoidable mistakes” that cost the exchequer a reported £8.5bn in the 2018/19 year.
HMRC wants to make it as easy as possible for people to pay the right amount of tax and to explore “real-time” tax reporting under MTD to align it with the reporting of tax information. The government has argued that changing the technology infrastructure and utilising digital technologies will make it harder for taxpayers to avoid paying the correct amount of tax and give HMRC the ability to intervene earlier.
The COVID-19 pandemic highlighted the need for a responsive tax system that provides up-to-date information about businesses and their finances to provide the appropriate taxpayer support. MTD will have a significant effect on the productivity of the economy and its adaptability in times of crisis.
From April 2022, the programme will be extended to all VAT-registered businesses with a turnover below the VAT threshold (£85,000). From April 2023, MTD will apply to taxpayers who file income tax self-assessment tax returns for business or property income of more than £10,000 a year.
Financial Secretary to the Treasury Jesse Norman set out their rationale:
“This timetable allows businesses, landlords and agents time to plan, and gives software providers enough notice to bring new Making Tax Digital products to market, including free software for businesses with the simplest tax affairs.”
Businesses can choose to use spreadsheets to both maintain digital records and perform tax calculations, provided the spreadsheets can combine with a ‘bridging’ software that will allow VAT records and return data to be sent to HMRC.
Some businesses and agents are already keeping digital records as part of a live pilot to develop and test the MTD service for income tax. If you are a landlord or a self-employed business, you can voluntarily use this software before the legislation is introduced instead of filing a tax return – more information is available here.
To view the draft legislation and the supporting documents for the Finance Bill 2020-21, please visit the government’s website.
MTD for Corporation Tax
The government will also consult in the Autumn on extending MTD to Corporation Tax paid by incorporated businesses.
Churchill Knight is already supporting businesses in Making Tax Digital for VAT
Churchill Knight & Associates Ltd is committed to supporting contractors and freelancers who may be affected by the changing legislation transition to MTD for VAT. Our accountancy software is already equipped to handle ongoing VAT reporting and will ensure your records are stored and filed in line with MTD legislation.
Are you interested in finding out more about our services? Please request a call for a time that suits you, and one of our expert consultants will be in touch to discuss your accountancy options. Alternatively, please send us a message here.
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